Money to Grow On

Finding Financing for Startups and Expansions in a Tight Money Market

Never has it been easy for food and beverage entrepreneurs in the hospitality industry to find the financing needed for growth. Even in the best of times, owners and operators were up against the fact that two-thirds of all F&B ventures fail in the first five years of opening. In today’s economy, the financial burden on businesses is certainly grim, especially when trying to get the requisite dollars needed to expand an existing venue or build second and third locations. It can turn the proprietary dream of multi-location ownership into a dream deferred.

Never mind the fact that some of the best opportunities for growth in the hospitality industry can and do present themselves in times when a credit manager is wont to frown on all but the most collateralized, no-risk options for risking a lending institution’s money. Many startups and veteran independents are contemplating the future; often left to wonder what other credit options are available.

This is what Owner Stephanie Richardson faced when a second venue adjoining her Bailey’s Cafe in Saratoga Springs, N.Y., became available two years ago. For Richardson, the opportunity to grow her business didn’t come at the most ideal economic time.

Whether as a result of the financial times or in spite of them, Richardson saw the ready advantages of owning both places. Luckily, she was able to work out the financing with the same bank that had financed Bailey’s nine years before.

With a strong credit history, Stephanie Richardson was able to secure money to open a second venue, Peabody’s Sports Bar and Grille in Saratoga Springs, N.Y., without much trouble.

“Being next door to us and the buildings being connected, that was the draw for us,” she says. “We had a whole different theme with the second venue, which we transformed into Peabody’s Sports Bar [and Grille]. The two venues complement each other nicely,” she adds, explaining that it’s common for her customers to come to Bailey’s for dinner, head to Peabody’s to watch sporting events on any of 25 flat-screen TVs and then go back to Bailey’s for music and more fun.

In addition to a solid credit history and a record of on-time payments to the bank, Richardson says she had considerable collateral because she owned the real estate, as well as the business itself. This was a major factor in getting the thumbs up from her local bank.

In her case, she was even able to acquire an additional four rental properties upstairs with the purchase of the adjoining property, which help out considerably come mortgage payment time. “We had to buy the business from one person and the property from someone else. We took Peabody’s and added it to the existing loan for Bailey’s.”

Ray Vasquez was not as fortunate in securing a loan from his local bank for a new startup restaurant and sports bar he wanted to open. “We figured that it would not be a problem to get financing, “says the now proud owner of a 4,000-square-foot Johnny Rockets in New York that opened a little more than a year ago. “They strung us along, and then one by one, they said they could not help us. We were extremely frustrated because we had good relationships with major banks going back 15 and 20 years.”

For Ray Vasquez, difficulty getting financing from his local bank forced him to cast a wider net.

Meanwhile, Vasquez says the clock was ticking on a startup deal in which he had already secured a coveted retail franchise and signed a lease on the ideal location. “We were ready to begin construction. The only thing holding us up was the financing.”

Not wanting to put personal money into the venture, Vasquez says his restaurant and sports bar might never have been built had he not followed up on the advice of his attorney to contact a company called Biz2Credit. As opposed to the traditional approach of going out and filling out credit applications, the New York company founded in 2007 by CEO Rohit Arora streamlined the process for Vasquez considerably by bringing computer and Internet technology to the task. “Biz2Credit can do in a few minutes what it would take an owner weeks or months to accomplish.”

The real time process that owners access with a fee that ranges from $9 to $99 per month allowed Vasquez to research the credit criteria for several hundred banks instantly and resulted in a successful match that netted him the approximately $1 million he needed to open his business. “My experience with Biz2Credit showed me that the underwriting criteria for banks is not the same,” Vasquez says. “These guys came in at the right time and helped move my plan forward when it could have really fallen apart.”

“Our mission is to assist small business owners who do not have a chief financial officer to look for the best credit options available in the credit market,” Arora says. “Once we have matched a perspective borrower with a bank, we receive approximately 1% of the loan value from the lending institution.” Arora’s company also helps operators by managing the loan process itself for those who opt to pay the additional fee. In all, Arora says his company has helped more than 5,000 business owners get funding “And we’ve closed more than $350 million in funding through our platform,” he says.

Taking advantage of new business opportunities is a scary endeavor in even the healthiest of economic times, but by having a strong credit record and researching what’s out there, you’ll find people willing to help you realize your expanding business empire dreams. NCB